Tax Shifts Pass Va. House

By Pat BauerFebruary 10, 1981

The Virginia House of Delegates early this morning approved sweeping changes to the state's income tax laws that would effectively raise the tax bills of people with higher incomes and cut those of low- and middle-income taxpayers.

The measure, passed by a vote of 57 to 37 at the end of a marathon 12-hour session, would knock out deductions for such items as interest on home mortgage, major medical expenses and charitable contributions, and replace them with a standard $4,500 deduction.

While the measure's sponsor, Del. Johnny Joannou (D-Portsmouth) had promoted it as giving the state a more equitable tax structure, many Northern Virginians said it will place an undue tax burden on homeowners in the Washington suburbs, where home costs are the highest in the state.

"Obviously it's going to sock it to us, and that's not fair," complained Fairfax County Board Chairman John F. Herrity. Northern Virginia real estate officials and leaders of charitable institutions warned that the bill, if approved by the state Senate and Gov. John N. Dalton, could bring havoc to their businesses.

Although the measure passed the House by a comfortable margin it is expected to face stern opposition in the Senate, where influential Finance Committee Chairman Edward E. Willey (D-Richmond), Majority Leader Hunter B. Andrews (D-Hampton), and Northern Virginia delegation leader Adelard L. Brault (D-Fairfax) have openly expressed skepticism. "I'm not going to vote for it," Willey said today. "If you're going to be introducing anything as far-reaching as that, the members of the Senate ought to be aware of it, and I think it's a little late to be presenting it now."

Under the bill, Virginia taxpayers would compute their taxable incomes by using a standard $4,500 deduction, or $9,000 per couple, rather than the same deductions that are now permitted on federal and state tax forms for mortagage and loan interest, charitable contributions, and catastrophic medical costs. The new bill would place a flat 4.75 percent tax rate on taxable income rather than following the graduated 2-to-5.75 percent tax scale that is currently in force.

According to Joannou's figures, the bill would place a larger levy on individuals earning $25,000 and couples earning $50,000 a year or more. An individual earning $25,000 would pay $80 more each year in state income taxes, the same increase that a couple earning $50,000 would face. The bill's impact would be more severe on an individual earning $100,000 who would pay approximately $500 more to the state.

Joannou, a populist whose political mentor was former lieutenant governor Henry E. Howell of Norfolk, said his measure would give the state the same amount of money that the current income tax raises. The Dalton administration would not comment on the bill last night, although some legislators said it appeared to go against pledges Dalton made during his 1977 campaign to fight any increase in the state's income tax rate.

Critics argued that the actual cost to taxpayers could run far higher in Northern Virginia, where big home mortgages leave many residents claiming mortgage interest deductions that are much larger than the average levels used in Joannou's computations.

"If they're making that much money, I have no problem with them paying an extra $200 or so a year more in taxes," said Joannou, whose Portsmouth district falls well below the state average in per capita income. "I just think this is a much fairer and more equitable way to do things."

The state's real estate industry vowed to lobby against the bill in the state Senate, saying it could cause a massive disruption of the Northern Virginia housing market. "They're jerking the rug out from under everybody," said Donald E. McNary, president of Coldwell Banker-Routh Robbins Realtors, one of the area's largest sellers of private homes. "They want to take it away from the guy who is grinding it out for a living and giving it to the guy who doesn't work as hard. I guess you could call this a Robin Hood bill."

Spokesmen for charities said they feared the elimination of charitable deductions from state tax forms might mean a drastic cut in their contributions. "This will definitely hurt any charitable organization -- hospitals, colleges, universities -- any group that has to get support from the public," said Eugene Berres, an officer of the state's United Way organization. "If people don't deduct, they really don't give as generously."

Passage of the bill, with six of Northern Virginia's 19 delegates supporting it, came as a surprise to many legislators who had seen the divided 9-7 vote it received in the House Finance Committee as an indication that it was in trouble. But the measure squeaked by the House in a preliminary tally of 44 to 43, with the tie-breaking vote cast by Speaker A. L. Philpott, and the final 57-37 victory came after Joannou had personally lobbied many of his opponents.